A reader requested that I pass this information on to readers and encourage you to take action (call your Congressperson, sign the petition, make others aware) because your future as a trader just might be at stake.

On February 13th, Congressman Peter DeFazio introduced House Resolution 1068 which seeks to impose a 0.25% tax on all securities purchases including stocks, futures contracts, and options as an effort to force Wall Street to pay for the TARP Program. Under the auspice “Wall Street got us into this mess – let Wall Street get us out,” Congressman DeFazio (and supporters) doesn’t seem to understand how this will affect our industry, particularly as retail/at-home traders who are trying to make a living trading the markets, not to mention the ramifications it will have beyond that (in terms of Mutual Fund expenses, retirement accounts, and other such ‘butterfly effects’ that will affect anyone who buys or sells stocks).

There is an online petition to sign which also explains more about the proposed legislation and describes how you might be affected. Quoting from the petition:

“First, many hard-working Americans make their livings by running small businesses that trade stocks, options and other financial instruments. Many of whom will be put out of business due to the fact that their margins are often quite thin. In addition, those who work for or with these individuals will also lose their jobs.”

“Finally, such a tax will undoubtedly affect the number of shares traded on an absolute basis, thus reducing liquidity – a necessary ingredient in the effective pricing of assets.”

“The body of the bill suggests that such a tax would have a negligible impact on the average investor. I beg to differ. For example, a $10,000 trade (or approximately 100 shares of stock in Apple, Inc.) would increase the cost of a round trip transaction by $50.”

(a) Imposition of Tax– There is hereby imposed a tax (0.25%) on each covered securities transaction an amount equal to the applicable percentage of the value of the security involved in such transaction.CommentsClose CommentsPermalink

(b) By Whom Paid– The tax imposed by this section shall be paid by the trading facility on which the transaction occurs.

I’m not clear on whether the individual must pay the tax of the “trading facility” must pay the tax, or perhaps the trading facility would impose the tax on each client and then pay the tax.

Oh, and if you think this can’t happen, the bill states the following in its “Reasons” section:

(7) The United States had a transfer tax from 1914 to 1966. The Revenue Act of 1914 (Act of Oct. 22, 1914 (ch. 331, 38 Stat. 745)) levied a 0.2 percent tax on all sales or transfers of stock. In 1932, Congress more than doubled the tax to help overcome the budgetary challenges during the Great Depression.

And also from the Reasons Section:

(5) The easiest method to raise the money from Wall Street is a securities transfer tax, a tax that has a negligible impact on the average investor.

(6) This transfer tax would be on the sale and purchase of financial instruments such as stock, options, and futures. A quarter percent (0.25 percent) tax on financial transactions could raise approximately $150 billion a year.

Read the text of the entire bill (it’s not that long) and take action (write, call, email) if you feel it appropriate.

I cannot underscore how devastating this bill would be to most of the people in the active retail (at-home) trading community, other bloggers, and other ‘average investors’ (through the law of unintended consequences) if this bill passes and it does wind up costing 0.25% to buy and sell (or just even on one side of the transaction).

As a hypothetical, If you traded a $100,000 account (full dollar value) each day and assume the 0.25% tax would be levied on one side of the transaction (say, the buy), then you would have to pay $250 per day in tax, which is $1,250 per week, or $5,000 per month… which is $60,000 per year.

I don’t even need to tell you how quickly that would put you out of business and end your retail trading career. You think you can make a 60% return on your $100,000 every year from here on out… just to break even?

It’s just Washington gone amuck. Tim (Sykes) also posted about how the short-selling ban was ‘effective’ seeing as that companies still managed to trade to multi-year lows after that debacle last year.

It’s up to us to stand up and try to let our representatives know what we think now because they’re clearly not going to think for us.

Put the tax on all those exotic derivatives generated by the banks,,,don’t take it out on stock trading investors.
Maybe with a tax on the derivatives, exotic or otherwise, would make the irresponsible bankers a little wiser? I doubt it but it might be worth a try. Use some of the funds to regulate the irresponsible greedy jerks.

If a tax like this passes, it will KILL the market. Let’s just say my prediction of DOW @ 1600 will be fulfilled. If it even looks like it has a remote chance of passing, I will go all-in on TZA, and then I’ll pay my stupid $50 tax on top of my $50,000 capital gains tax. ROFL

I predicted the crash on sept 19th, because I knew the ban on short-selling would pull liquidity from the market. This tax would be 10 times as devastating. 10 million jobs would be lost in a matter of weeks after this passed. There is NO chance the establishment would ever allow a tax like this to pass, unless they are truly ready to implode the country.

Its way worse for future traders. A one point gain on S&P Emini future (ES) is $50. Imagine paying a $170 tax on this trade. A trader’s income consists of large number of small losses and a small number of hugely profitable trades which compensate for the losses.

This bill would simply mean an end to day trading, an end to the futures market and various software jobs that support data feeds, trading software, plugins and such.

This bill has gone to committee. Write to the bill’s sponsors and every member of the committee asking them politely to kill the bill explaining your reasons.

Just looked at this…bill looks good to me….1. Get rid of many stupid day traders that make and mostly loss money (people that probably end up going on welfare and therefore my taxes go up even more…) on day and nano trading….think this type of trading hurts investors like me.2. Example given distorts a real example:A. most stocks don't trade at the price of apple. I own mostly XZY (typically priced stock). So a sale of 100 shares is about $2,200 which would mean a tax of what…$15 dollars….B. most people (Joe the Plumber if you will) don't even own that many stocks

From Web site: “The body of the bill suggests that such a tax would have a negligible impact on the average investor. I beg to differ. For example, a $10,000 trade (or approximately 100 shares of stock in Apple, Inc.) would increase the cost of a round trip transaction by $50.”

I own more stock and make more money then most people and trade a total of $20,000 a year. This means that I pay $100 more in taxes a year…I am OK with that…over an increase in income tax.

So, this is a tax the wealthy (and reckless day traders) tax which I am not sure is good or not but to get 'Joe the Plumber' worked up is a way of scaring the public so wealthly people can become more wealthy…now that is elitism….

You Trade only 20,000 a year, That is trivial. Most Pro day traders trade that per week if not daily. With this bill the market makers will have a field day scalping your investments, Good luckgetting a fair price. With thin markets the big boys will manipulate the market and soon the SPY will act more like FXI.. Can you stomach 50% volatility on an average basis.

You Trade only 20,000 a year, That is trivial. Most Pro day traders trade that per week if not daily. With this bill the market makers will have a field day scalping your investments, Good luckgetting a fair price. With thin markets the big boys will manipulate the market and soon the SPY will act more like FXI.. Can you stomach 50% volatility on an average basis.